PIONEER'S BRIGHT PICTURE Its laser video players took nearly a decade to catch on. The wait was worth it. Just ask Madonna.

By Brian O'Reilly

August 13, 1990

(FORTUNE Magazine) – IT SEEMS THAT no sooner do the fertile imaginations of design engineers dream up whiz-bang electronic gadgets than consumers decide they can't live without
them. But Pioneer Electronics, the Japanese company best known for its stereos and car radios, spent 13 years nursing an obscure and frustrating technology into a thriving business.
The laser video player, which Pioneer introduced in a joint venture with IBM and moviemaker MCA in 1980, is one of the fastest- growing consumer electronics products in both Japan and
the U.S. This year Japanese consumers are expected to buy -- at $600 each -- 1.2 million laser video players, which marry the superb sound of audio compact discs with crisp pictures.
American gadgeteers will probably pick up 215,000. Worldwide sales of the players are growing at 35% annually -- and Pioneer currently controls 75% of the international market. While
other electronics colossi like Panasonic and Sony have begun selling competing machines, their adoption of Pioneer's technology makes it the industry standard. Richard E. Ozaroff, a
security analyst at Value Line Inc., estimates that Pioneer could be selling $4 billion of laser players annually by 1994. With markets for its mainstay products saturated, Pioneer
badly needed a hit. The stereo boom that once powered its growth was over, and Pioneer had missed out on the biggest sellers of the Eighties, the videocassette recorder and the
Walkman-style audio players. The home audio business, which accounts for 35% of revenues, got a small lift from the popularity of compact discs -- they produce such clear sound that
many buyers of CD players upgraded their systems with Pioneer speakers and receivers. Car audio equipment makes up another 30% of the company's sales, but there, too, growth has
flattened. Automakers in Detroit and Japan now install elaborate stereo systems at the factory, cutting into the aftermarket that Pioneer dominates. Rather than play catch-up in the
crowded, low-margin VCR business, Pioneer set out to perfect laser video technology that produced better image and sound quality. Says Michael Fidler, head of Pioneer's stereo and
video operations in the U.S.: ''We are a high-fidelity company, and we didn't see videotape as a high-fidelity product.'' For a while the laser strategy looked like a bad bet. Unlike
VCRs, laser players cannot record. Since few films were released in the format and the 12-inch discs were often too flawed to play, Pioneer's first buyers had little to watch. When
IBM and MCA gave up on the technology in 1982, Pioneer bought its partners' player and disc manufacturing plants and spent millions to improve quality. Where MCA was using an old
record factory to make laser discs, for instance, Pioneer installed clean rooms as sophisticated as those used by semiconductor companies. Astute marketing also gave Pioneer a boost.
When compact disc audio players became popular, the company developed a model that plays both audio and video discs and reduced the price in the U.S. from $600 to $500 last year.
Pioneer began sponsoring tours by popular recording artists -- most recently Madonna's spectacular Blonde Ambition show -- to broaden the product's appeal to younger buyers. Pioneer
makes 90% of the discs produced in the U.S. -- mostly feature films -- giving it strong control over how they are distributed. The company sells them, at about $29 each, mostly
through record stores, and won't rent them at video outlets. The money is in sales, says Fidler. ''It's like razors and razor blades.'' Pioneer's dogged perseverance has helped
transform the company into one of Tokyo's sharpest financial performers. Sales in the last fiscal year rose 22%, to $3.2 billion, and earnings zoomed 49%, to $186 million. Its shares,
which trade on the New York Stock Exchange as ADRs, have roared back from a low of just $13.50 five years ago to a recent peak of $86.75. That gives Pioneer stock a price/earnings
ratio of around 50, about average for Japanese electronics companies. Shunichi Yoshizawa, a vice president at the U.S. subsidiary of Yamaichi Securities, rates Pioneer a good buy for
investors willing to hold the stock for a year. Says he: ''Pioneer has a very good future.''